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      With the BRI, China Still Has a Long Road Ahead

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      To determine whether China can deliver a better Belt and Road Initiative (BRI), we must first ask whether Beijing is first of all capable of delivering a better BRI? Accusations of practicing debt-trap diplomacy and new forms of colonialism have had some impact on Beijing’s thinking, resulting in its pivot in 2018 to commit to a new, greener BRI, but the foundation of its “grand plan” for implementing the BRI basically remains similar to when it started in 2013.

      Beijing’s BRI Hubris Comes at a Price

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      President Xi Jinping and the Communist Party of China (CCP) have put some good-looking window dressing on the basic package, but so far, many BRI host country governments would say not all that much has changed since 2018, when Xi announced a pivot. Beijing is very good at saying one thing and doing another, as numerous governments around the world have learned. As a result, BRI host nations will inevitably believe that Beijing has had a real change of heart when they see it.

      Deaf Ear

      Part of Beijing’s problem is that it does not appear to be attuned to what the world is thinking. Perhaps it does not care. Reading Chinese media reports on the subject leaves one with the impression that the world is in unison and harmony with Beijing, its vision for the world and its performance thus far with the BRI. For example, according to  the CCP’s primary media outlet, the China Daily, a 2018 survey of 8,500 people in 17 BRI countries determined that “more than 70% agreed with the concepts of the “Chinese Dream,” the Belt and Road and “a community with a shared future for mankind.” But even this Chinese government-sponsored survey admitted that 64% of respondents believed that the BRI will confront many difficulties and challenges in the future.

      That concern was echoed by a 2019 survey by Singapore’s ISEAS-Yusof Ishak Institute, which polled more than 1,000 respondents in the government sector, the business community, civil society, academia and the media from across all 10 member states of the Association of Southeast Asian Nations. It found that fewer than 10% of respondents viewed China as “a benign and benevolent power,” 64% had little or no confidence that Beijing’s revised approach to the BRI will result in a fairer deal for their respective countries, and nearly 50% responded that they believed that Beijing possessed an intent to turn Southeast Asia into its own sphere of influence. That does not sound like a particularly inspiring foundation from which to try to turn things around.

      Beijing knows it has a long road ahead. To its credit, it has issued regulations intended to better monitor the conduct of state-owned enterprises and private Chinese businesses, mandating that they should pay more attention to environmental, social, integrity, financial and other risk factors. If a particular host nation’s laws are weak, these entities have been advised to ensure compliance with Chinese law, international treaties and conventions, and industry best practices. Reporting requirements, capital controls, and the regulation of overseas finance and investment have been tightened, which has contributed to the notable decline in new Chinese overseas loans and investments since 2017.

      Outside the Norm

      That said, Beijing has generally been reluctant to apply its laws to the activities of its entities overseas. In fact, State Council guidance requiring extensive disclosure of contracts for major construction projects expressly exempts overseas investment and foreign aid projects. Laws criminalizing the bribery of foreign officials have never been enforced. Although Chinese courts have heard cases related specifically to the BRI, unless a project contract contains explicit obligations for which performance is sought, enforcement of Chinese laws for overseas actions almost never occurs. Beijing appears to be banking on the fact that a great many of the BRI’s host governments have worse transparency and corruption ratings than China, which presumably makes their willingness to pursue Chinese entities engaged in corruption less likely in the first place.

      As long as Beijing continues to insist that only Chinese entities will provide financing for BRI projects, there is no way for external organizations to monitor transparency, corruption or adherence to international standards. That will, by itself, ensure that tension remains between Beijing, BRI host nations and the West, and signals to the world that Beijing is not in fact serious about reforming fundamental aspects of the initiative. Greater emphasis can be placed on taking some care not to blatantly violate national laws and international norms, allowing Beijing to proclaim that progress is being made, but that will continue to be on a relative scale.

      If practices were previously wholly outside the norm of internationally acceptable behavior but they are improved, they can remain outside the norm of acceptable behavior even though they have improved. More than minor tweaks are required to demonstrate that a true pivot has occurred. Beijing certainly has the ability to implement meaningful wholesale change to the BRI if it chooses to, but it has yet to do so. Based on its prior history of performance regarding its flagship initiative, such changes stand little chance of being implemented.

      *[Daniel Wagner is the author of “The Chinese Vortex: The Belt and Road Initiative and its Impact on the World.”]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      Beijing’s BRI Hubris Comes at a Price

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      Despite more than 3,000 years of Chinese history, many of the world’s countries had little to no direct experience with China or Chinese investment prior to the launch of the Belt and Road Initiative (BRI). There was a presumption on the part of many governments that international best practices were well established and that China would be in compliance with those standards as it rolled out the initiative. As they now know, that often turned out not to be the case, but the fact that the Chinese business model is a mix of public and private sector participation, rules and regulations that are not necessarily logical or coherent and are often misunderstood has complicated matters.

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      For all concerned, the BRI has in many ways been a leap in the dark, since such an ambitious undertaking had never before been attempted. The Chinese government, and many of the nation’s companies active in the initiative, were, and remain, on a learning curve. The enforceability of Chinese regulations on private sector Chinese companies operating overseas can be inconsistent, and Chinese-built infrastructure has, at times, been found to be substandard. Regulations governing the practices of Chinese firms are frequently revised, leaving many organizations scrambling to keep up in the public and private sectors. It then takes a while for new guidelines to translate into practice abroad.

      BRI Financing

      BRI financing is highly dependent on loans from the China Development Bank, China Export-Import Bank and other state-owned commercial banks. China’s foreign exchange reserves are important sources of capital for these institutions. Although Beijing maintains the world’s largest aggregation of foreign currency, its foreign reserves have declined in recent years, which, when combined with its dramatically slowing economy, raises questions about the sustainability of BRI financing in the medium term.

      Under the presumption that foreign capital and support from multilateral financial institutions will be required to sustain BRI projects in the future, China’s Ministry of Finance established the Multilateral Cooperation Center for Development Financing with eight multilateral development banks and financial institutions. The center is expected to enhance the project financing process through a combination of better information sharing, improved project preparation and capacity building. The ministry has also developed the Debt Sustainability Framework for Participating Countries (DSF) of the BRI, collaborating with its counterparts from 28 partner countries. China’s DSF is virtually identical to the World Bank-International Monetary Fund DSF, which governs lending operations for the multilateral institutions and many bilateral lenders. That should increase its prospects for success.

      China’s effort is a significant step forward in guarding against the debt challenges associated with the BRI. Debt sustainability can only grow in importance for Beijing. As the BRI progresses, China will have no choice but to take steps to improve reporting transparency vis-à-vis financing, transaction structures and debt repayment. As for host governments that have become saddled with tens of billions of dollars of debt as a result of debt-trap diplomacy, their concerns have been widely shared with Beijing. Many of these nations have already become more discriminating BRI consumers. Although the trail of debt-related issues will certainly not diminish going forward, they will hopefully become less severe in time.

      The Chinese government has sought to integrate the BRI with its green growth agenda in an attempt to address criticism of its continued reliance on coal power and the lack of environmental oversight on Chinese infrastructure projects. Although Beijing has made great strides toward improving environmental and resource productivity, greater efficiency gains are vital to achieving a shift toward low-carbon, resource-efficient, competitive economies. Future progress will largely depend on the country’s capacity to integrate environmental aspects into the decision-making process for all its domestic and foreign policies to ensure that industrial and environmental policy objectives and measures are well aligned and mutually supportive.

      Reputational Risk

      At ongoing risk also is China’s reputation. The blowback it has experienced as a result of its rollout of the BRI from countries around the world has been unprecedented. The same may be said about its trade practices with the US and its response to COVID-19. Many of the world’s governments and people have simply lost confidence in Beijing, to the extent that they had confidence to begin with. The ball is squarely in Beijing’s court to raise the level of confidence the world may have in the future regarding what it says versus what it actually does. There is no better proving ground on that score than the BRI.

      A combination of hubris, a bulldozer approach to getting things done and a complete lack of sensitivity had worked well for the Communist Party of China at home for 70 years, and Beijing apparently believed that doing the same would work well overseas. While some aspects of Beijing’s original approach ended up yielding some positive results, President Xi Jinping’s move toward “BRI lite” in 2018 had to be taken with a grain of salt. He deserves credit for acknowledging some of the initiative’s pitfalls, but the Chinese government’s pivot must ultimately be considered too little and too late.

      If it wanted to more fully acknowledge the error of its ways, it would have offered to renegotiate every BRI contract that was clearly skewed in its favor rather than waiting to be asked to do so, award debt forgiveness on a broader basis and stop in its tracks any project under construction that is inconsistent with best environmental practices. That is clearly not going to happen.

      *[Daniel Wagner is the author of “The Chinese Vortex: The Belt and Road Initiative and its Impact on the World.”]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      The West Must Help Myanmar Escape China’s Embrace

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      On July 2, Myanmar became the only country in India’s immediate neighborhood to accuse China of interference in its internal affairs. Senior General Min Aung Hlaing, the commander-in-chief of the Tatmadaw or the combined armed forces of Myanmar, accused China of arming terrorist groups like the Arakan Army (AA) and Arakan Rohingya Salvation Army (ARSA) in an interview with Russian state-run TV channel Zvezda. He also sought international help to suppress them.

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      Min Aung Hlaing’s statement is telling. It reveals that China is putting unprecedented pressure on its neighbors in the Association of Southeast Asian Nations (ASEAN). It is important to note that Min Aung Hlaing praised China as an “eternal friend” during a visit to Beijing in 2019. He thanked China for its support and for countering international pressure on Myanmar over its treatment of Rohingya civilians, a Muslim minority in Rakhine State.  

      The senior general has turned on Beijing at a sensitive time. China is facing international criticism for the spread of the COVID-19 disease, its detainment of Uighur Muslims in the Xinjiang region and for its aggression toward its neighbors. Yet it could be seen as part of a longer pattern in Myanmar.

      Turning Away from China Not Easy

      More than 10 years ago, the then-ruling military junta decided to reduce Myanmar’s economic dependence on China. At the heart of this decision was the goal of reducing China’s excessive influence in Myanmar.

      When retired General Thein Sein was president from 2010 to 2015, he ushered in initiatives to repair relations with India, the West and ASEAN. At first, these initiatives led to increased international aid, but it was short-lived due to the military crackdown on the Rohingya insurgency in the Rakhine state. Myanmar has faced international condemnation, isolation and sanctions since. By 2017, the brief “honeymoon” was over and China was back to its old games, with the West losing its window of opportunity in Myanmar.

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      China has been known to support the United Wa State Army (UWSA). The UWSA is an armed force of an ethnic minority that runs an autonomous region with little interference from central authorities. As per the Asia Times, the “UWSA’s relationship with China is a pillar of its autonomy.” China uses the UWSA to exert leverage within Myanmar. It also benefits economically because minerals from the Wa area are exported across the border to China.

      The UWSA is one of the many insurance policies Beijing uses to retain its eminence in Myanmar. Today, it has cultivated the ruling National League for Democracy (NLD) led by Aung San Suu Kyi, a Nobel laureate who was once the darling of the West. She wants to reverse Thein Sein’s decision in 2011 to suspend work on the Myitsone dam. Beijing’s State Power Investment Corporation (SPIC) was supposed to build this $3.6-billion dam at the source of the Irrawaddy River.

      The Myitsone area is said to be the birthplace of the Kachin people, after whom the state is named. They have fought the Tatmadaw since 1962, making itis one of the longest civil wars for a resource-rich region. The Kachin oppose the dam because it could put large parts of their region under water and threaten their livelihoods. As the BBC reports, Suu Kyi “needs to establish prosperity and peace if she is to convince the Burmese people of the benefits of democracy.” The dam might provide irrigation and electricity, boosting the ruling NLD.

      Suu Kyi is turning to China because the West has abandoned her. The days when former US President Barack Obama visited Myanmar and kissed her cheek seem distant. The Rohingya crisis has been roundly criticized by Western media and brought allegations of genocide.

      Chinese President Xi Jinping has stepped into the vacuum and visited Myanmar earlier this year. China has been planning the China–Myanmar Economic Corridor (CEMC) as part of its Belt and Road Initiative. It includes infrastructure such as railways and a deep-sea port at Kyaukphyu on the Bay of Bengal. This port will help China avoid the more vulnerable Straits of Malacca, where it fears being choked off.

      The West Must Change Tack with Myanmar

      Since 1990, Western powers have imposed sanctions on Myanmar for a variety of reasons ranging from human rights violations to lack of democracy. At the same time, they rushed to engage with China despite the 1989 Tiananmen Massacre. Myanmar became an outcast even as China won investments, joint ventures and a red carpet welcome to the World Trade Organization.

      Unlike China, which has had no election for 75 years, Myanmar has held three major elections in 1990, 2010 and 2015. A fourth is due in October this year. Suu Kyi’s NLD has won the past three elections.

      When it comes to the treatment of minorities, China has been worse than Myanmar. Its treatment of Tibetans has been terrible and its persecution of Uighurs makes daily headlines. Therefore, Min Aung Hlaing’s revelation that China is championing the Rohingya — a majority of whom are now sheltering in Bangladesh — is deeply ironic. China is supporting the Arakan Army and the Arakan Rohingya Salvation Army to destabilize Myanmar and win their support in the future. This policy of interference in Myanmar has implications for both India and Bangladesh. It is in keeping with the Chinese policy of destabilizing India’s northeast region.

      China’s strategy of destabilizing Myanmar even as it makes it an economic vassal has lessons for others. Western powers must provide Myanmar with much-needed investment. The Tatmadaw, led by Senior General Min Aung Hlaing, clearly wants to avoid Chinese domination. Suu Kyi is also no natural ally of China. They have both been pushed into Chinese arms by Western intransigence. Along with investments, a security arrangement involving many countries such as India, Bangladesh and Western powers would help.

      Currently, the Quadrilateral Security Dialogue (or the Quad) is the best vehicle to guarantee Myanmar’s security. It must thwart the development of CMEC. Otherwise, the Chinese navy will be sitting on India’s doorstep and the Quad would lose strategic advantage in the Indian Ocean. India has already been strengthening its relationship with Myanmar under its “Look East” or “Act East” policy. The relationship has been on the upswing since 2010 and is set to improve further.

      Yangon is sensitive to India’s strategic and security concerns. India has shown the same degree of understanding. For India, Myanmar is the archway to ASEAN and the far east. With the Chinese causing mischief at its borders, Myanmar has increasing strategic importance for India.

      The West must join India in its constructive engagement with Myanmar. In the October elections, Aung San Suu Kyi’s NLD is expected to win again. This victory could usher in an era of stability, economic progress and development. Myanmar’s civil and military leadership has no desire to embrace vassal status. It is up to the West to step up and give Myanmar a choice. With the Chinese menace rising by the day, failure to do so would be a historic blunder.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      What Has COVID-19 Done to Small Businesses?

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      Small and medium-sized enterprises (SMEs) are businesses with revenues, assets or employees below a certain threshold. SMEs are important to the health of any country as they tend to form the backbone of the economy. When compared to large enterprises, SMEs are generally greater in number, employ far more people, are often situated in clusters and typically entrepreneurial in nature. They drive local economic development, propel job creation and foster growth and innovation.

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      According to the World Bank, SMEs represent about 90% of businesses and 50% of employment worldwide. In the United States, 30 million small businesses make up 44% of GDP, 99% of the total businesses and 48% of the workforce, amounting to 57 million jobs. In India, the SME sector consists of about 63 million enterprises, contributing to 45% of manufacturing output and over 28% of GDP while employing 111 million people. SMEs in China form the engine of the economy comprising 30 million entities, constituting 99.6% of enterprises and 80% of national employment. They also hold more than 70% of the country’s patents and account for more than 60% of GDP, contributing more than 50% of tax collections.

      Different Countries Define SMEs Differently

      Though most experts agree on the crucial role SMEs play in any economy, the definition of an SME varies by country. In the US, the Small Business Administration (SBA) defines SMEs broadly as those with fewer than 500 employees and $7 million in annual receipts, although specific definitions exist by business and sector. Annual receipts can range from $1 million for farms to $40 million for hospitals. Services businesses such as retail and construction are generally classified by annual receipts, while manufacturing and utilities are measured by headcount. In June, the Indian government revised its SME definitions, expanding the revenue caps on medium and small enterprises from $7 million and $1.5 million to $35 million and $7 million respectively. In the United Kingdom, a small business is defined as having less than 50 employees and turnover under £10 million ($12.7 million), whereas a medium business has less than 250 employees and turnover under £50 million. 

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      Proper definitions matter. If SMEs are classified well, their access to capital and other resources can improve. They can apply for grants, get tax exemptions, collaborate on research with governments or universities or access other schemes. This gives SMEs better opportunities to survive and thrive.

      Since SMEs tend to be the biggest employers in most economies, a good policy to promote them creates jobs and develops worker skills. Furthermore, proper definitions enable governments to focus their efforts regarding SMEs and level the playing field for them vis-a-vis large corporations.

      Given the scale and nature of their business models, SMEs operate at the mercy of vagaries of the economy, geopolitical events and local policies. They battle competition from multinational giants, volatile cash flows, fickle customers, demanding suppliers and constantly churning employees. But the COVID-19 pandemic has crossed all boundaries. While the 2000 crisis was a dot-com bust and 2008 was a collapse of the financial systems, 2020 is clearly the SME crisis. It is Murphy’s Law at its extreme — anything that can go wrong has indeed gone wrong.

      The coronavirus crisis started off in early 2020 as a supply shock, which has now turned into a demand shock, impacting customers, employees, markets and suppliers alike. The consequences can be potentially catastrophic with the International Monetary Fund estimating that SME shutdowns in G20 countries could surge from 4% pre-COVID to 12% post-COVID, with bankruptcy rates in the services sector increasing by more than 20%.

      SMEs are bearing the brunt of the economic and financial fallout from the COVID-19 pandemic, not least because many were already in duress before the crisis. This could have a domino effect on the economy, given the pivotal role played by SMEs. Therefore, it comes as no surprise that most governments have sought to intercede legislatively with their fiscal might to ameliorate the predicament of SMEs.

      Indian and American Response

      It is instructive to note how different countries have responded to the economic crisis. India is a good country to start with. In early May, the government announced a 20-trillion-rupee ($250 billion) stimulus package called Atmanirbhar, equivalent to 10% of India’s GDP. It was a mixture of fiscal and monetary support, packed as credit guarantees and a slew of other measures. The centerpiece was an ambitious 3-trillion-rupee ($40 billion) initiative for SMEs, including instant collateral-free loans, subordinate debt of 200 billion rupees ($2.5 billion) for stressed micro, small and medium enterprises (MSMEs), and a 500-billion-rupee ($6.5 billion) equity infusion. Perhaps the largest component of the stimulus was the Emergency Credit Line Guarantee Scheme (ECLGS) that provides additional working capital and term loans of up to 20% of outstanding credit. 

      Although the scheme received positive feedback, the initial uptake was slow. On the supply front, bankers fretted about future delinquencies arising out of such accounts as the credit guarantees only covered incremental debt. On the demand side, SMEs were worried about taking on additional leverage when there is uncertainty about economic revival. Moreover, a 20% incremental loan may not suffice to service payrolls and operating expenses and keep business alive.

      Also, while this scheme addressed existing borrowers, the fate of those who are not current borrowers is unclear. While initial traction for the scheme was low, the recent momentum has been encouraging. The finance ministry reports that as of July 15, banks have sanctioned 1.2 trillion rupees ($16 billion), of which 700 billion rupees ($9 billion) have been disbursed largely by public sector banks, although private sector banks have joined in lately.

      Meanwhile, even the largest global economy has struggled with its SME relief program. In mid-March, US President Donald Trump approved a $2.2-trillion package under the Coronavirus Aid, Relief and Economic Security (CARES) Act to help Americans struggling amid the pandemic. One of the signature initiatives under the act was the $660-billion Paycheck Protection Program (PPP) aimed at helping small businesses with their payroll and operating expenses. This program was distinct from its peers in its loan forgiveness part, in which the repayment of the loan portion used to cover the first eight weeks of payroll, rent, utilities and mortgage would be waived. 

      The program, though well-intentioned, has struggled with execution issues exacerbated by labyrinthian rules. Matters came to a head when the initial tranche of $349 billion ran out in April. The program had to be refinanced but, by June, it was closed down with $130 billion of unused funds in its coffers. The program was restarted again and extended to August by Congress.

      Worse, the program saw refunds from borrowers who were unclear about the utilization rules. Loan forgiveness would be valid only if the amount was utilized within eight weeks. This stipulation made SMEs wary because their goal was to use cash judiciously and optimize the use of the borrowed amount to last as long as possible. These rules have since been amended by the Small Business Administration. It now gives SMEs 24 weeks to use the borrowed funds and allows them more flexibility on the use of funds. In any case, questions have been raised about capital not reaching targeted businesses and unintended parties benefiting instead. 

      Despite the changes in SBA rules, the jury is still out on whether more SMEs will take out PPP loans. Some are lobbying for full loan forgiveness. However, dispensing of repayment requirements essentially creates handouts that could lead to the lowering of fiscal discipline and increasing incentive for fraud. A recent proposal by two professors, one from Princeton and the other from Stanford, suggests “evergreening” of existing debt, a practice that involves providing new loans to pay off previous ones. Though innovative, it is not quite clear how such a policy would provide better benefits compared to a loan repayment moratorium, especially when it comes to influencing future credit behavior. 

      In addition to the PPP program, the SBA has announced the Economic Injury Disaster Loans (EIDL) program. This offers SMEs working capital loans up to $2 million to help overcome their loss of revenue. The program was closed down on July 13 after granting $20 billion to 6 million SMEs. Maintaining equitability and efficacy in the distribution process has been a challenge, though.

      European Responses

      Europe’s largest economy, on the other hand, has fared relatively better. In early April, German Chancellor Angela Merkel announced a €1.1-trillion ($1.3 trillion) stimulus termed the “bazooka.” This constituted a €600-billion rescue program, including €500 billion worth of guarantees for loans to companies. The German state-owned bank KfW is taking care of the lending. The program also includes a cash injection of €50 billion for micro-enterprises and €2 billion in venture capital financing for startups, which no major economy has successfully managed to execute. Notably, the centerpiece of the German program is the announcement of unlimited government guarantees covering SME loans up to €800,000. These loans are instantly approved for profitable companies.

      Berlin’s relief measures were specifically targeted at supporting Germany’s pride, the Mittelstand. This term refers to the 440,000 SMEs that form the backbone of the German economy. They employ 13 million people and account for 34% of GDP. Many of these firms manufacture highly-specialized products for niche markets, such as high-tech parts for health care and auto sectors, making them crucial to Germany’s success as an export giant. Not surprisingly, these companies have seen a contraction in revenues, especially the ones that depend on global supply chains. 

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      The swift implementation of these initiatives, coupled with the resilience of the Mittelstand, is demonstrating that SMEs can survive and thrive in this environment. The Germans have also been preaching and practicing fiscal prudence in normal times, which has now worked in their favor. Germany can afford to inject capital and do whatever it takes to save its SMEs.

      Since its first stimulus, Berlin has followed up with an additional €130-billion package consisting of tax, SME loans and spending measures aimed at stimulating demand. This included a €46-billion green stimulus focused on innovation and sustainable projects such as e-mobility and battery technology. In keeping with the German tradition, the SMEs who make the Mittelstand have stayed agile as well. They are diversifying their customer base and pivoting their business models to more recession-proof sectors. 

      The UK, another major world economy, also launched an array of relief measures, including the Coronavirus Business Interruption Loan Scheme (CBILS) worth £330 billion ($420 billion). This was designed to support British SMEs with cash for their payroll and operating expenditure. It also announced the Bounce Back Loan Scheme (BBLS) focused on smaller businesses. This enjoyed a better launch than CBILS because the latter, with its larger loan quantum, required more vetting and paperwork.

      Loans from the CBILS initiative, although interest-free for a year, are only 80% guaranteed by the government. This makes banks less willing to lend during these troubled times because they are afraid of losing 20% of the loan amount. This slows credit outflow and starves SMEs of much-needed capital. As of July 15, less than 10% of the allotted capital had been utilized, which banks blame on an inadequately designed scheme. By mid-July, only £11.9 billion had been disbursed to 54,500 companies through the CBILS and £31.7 billion to 1 million smaller firms through the BBLS.

      Businesses have sought modifications from policymakers to existing schemes. These include hiking government guarantees for loans to 100% and waiving personal guarantees for small loans. The Treasury has agreed to some of these demands. Critics also point to structural deficiencies in the system. They believe the administrative authority for SME loans should be a proper small business bank instead of the British Business Bank, which was not designed for SMEs. Already, the UK government has warned that £36 billion in COVID loans may default. More drastic measures seem to be on the way, including a COVID bad bank to house toxic SME assets.

      Responses Elsewhere

      Economies around the world have been responding to disruption by COVID-19. It is impossible to examine every response in this article, but Japan’s case deserves examination. The world’s third-largest economy had been battling a recession even before the pandemic. Declining consumption, falling tourism and plunging exports were increasing the pressure on an aging society with a spiraling debt of over $12.2 trillion. The pandemic has strained Japan’s fiscal health further.

      In response to the pandemic, the Bank of Japan announced a 75-trillion-yen ($700 billion) package for financing SMEs, which included zero-interest unsecured loans. Additionally, the National Diet, Japan’s parliament, enacted a second supplementary budget, which featured rent payment support and expanded employment maintenance subsidies for SMEs.

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      The execution of these programs has been tardy. The government’s 2015 digitalization drive is still incomplete, impacting the distribution of subsidies and the implementation of other relief measures. Of the more than 400,000 applications for employment adjustment subsidies, only 80,000 companies received aid by mid-June. Application procedures are unnecessarily complex, adding to the woes of SMEs.

      Any discussion on SMEs in the global economy would be incomplete without examining China, which was the first country to deal with the COVID-19 disease. In February,  the government announced a 1.2-trillion-renminbi ($174 billion) monetary stimulus. Large state-owned banks were ordered to increase lending to SMEs by at least 30% in the first half of 2020. Three of these banks alone were supposed to lend 350 billion renminbi ($49.7 million) to small businesses at preferential rates. In addition, Beijing encouraged local policymakers to provide fiscal support to keep SMEs afloat.

      China’s stimulus seems more understated compared to other major economies and their own 2008 bailout package. After controlling the first COVID-19 wave in March, the Chinese have focused on restarting the economy and reopening businesses instead of relief measures and bailouts.

      In February, surveys in China showed that 30% of SMEs had experienced a 50% decline in revenue. Surveys also found that 60% of SMEs had only three months of cash left. At the end of March, almost half a million small businesses across China had closed and new business registrations fell by more than 30% compared to last year. The resumption of work has been an uphill struggle. In April, the production rate of SMEs had crossed 82% of capacity, but the sentiment had remained pessimistic. Notably, the Small and Medium Enterprise Index (SMEI) had risen from 51.7 in May to 53.3 in June, indicating that SMEs are slowly reviving.

      With the easing of lockdown measures, domestic demand in China has picked up, driving SME sales. In turn, greater demand is increasing production activity and accelerating capacity utilization, causing a mild rise in hiring. The green shoots of recovery of Chinese SMEs should encourage authorities worldwide. 

      Policy Lessons for the Future

      Governing nation-states is an arduous task at the best of times and especially so in a nightmarish year of dystopian proportions. No wonder governments worldwide have appeared underprepared to combat the COVID-19 crisis. Whilst predicting a global pandemic of this scale would be next to impossible, there were early warning signs that severe disruptions to global health care, supply chains and business models were imminent. Yet scenario planning and stress testing of economic models has been flawed, impacting the swift rollout of relief measures.

      The crisis has also underlined the importance of fiscal discipline when economies are doing well. Countries that do so can build a robust balance sheet to leverage during troubled times. This crisis also brings home the importance of evaluating and reevaluating the efficacy of the entities that deal with SMEs. Policymaking is an iterative process, especially when it comes to SMEs and bodies that oversee them must be overhauled periodically.

      Importantly, policies pertaining to SMEs must have inputs from those with domain expertise. Structures must take into account execution capabilities and speed of delivery. Instant loan approvals with suboptimal due diligence have to be constantly balanced against longer vetting but slower turnarounds. Similarly, policymakers have to analyze the various types of instruments, fiscal and monetary, that can be used for SMEs. What works in one country may not work for another. 

      It is important to remember the nuances of different policy measures, such as guarantees, forgiveness, monitoring and moratoriums. Guarantees are a sound instrument for relief but are potential claims on the government’s balance sheet and contingent liabilities. They also have little economic value if capital is not promptly delivered to SMEs. Forgiveness provisions have their own issues. They may be important in a crisis but could incentivize subpar credit behavior in the future. Similarly, monitoring is important but is impractical when millions of SMEs are involved. There is no way any authority can keep a tab on the intended usage of funds. Finally, moratoriums have their own problems. Businesses could misuse moratoriums, putting pressure on banks and making accounting difficult. They were cheered at the onset of the crisis but further extensions could be costly to the ecosystem. 

      Going forward, governments need to prepare for the long haul. The consequences of the COVID-19 pandemic will stay with us for the foreseeable future. What began as a liquidity crisis might well become a solvency crisis for SMEs despite the best attempts to avoid that eventuality. If that does happen, governments will need to plan for efficient debt restructuring. They will have to institute insolvency management processes while figuring out how to handle bad asset pools. In simple language, governments will have to make tough decisions as to distributing gains and losses not only among those living but also future generations.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      The Real Scandal of Chinese Hacking

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      The image most people have of the world of espionage spans an intriguingly varied cast of contrasting personalities. It includes the colorful, the creepy, the beautiful but also the deceptively ordinary. It features a sexy Mata Hari and Christine Keeler. It stretches across history from Christopher Marlowe to the Cambridge Five, from Rosencrantz and Guildenstern to Julius and Ethel Rosenberg. And most people retain the image of the world-weary Cold War spies that have populated the novels of Graham Greene and John le Carré and the movies inspired by them.

      The advent of the internet has significantly transformed the landscape of spy-duggery. To be a spy used to require a solid education followed by intensive behavioral training and cross-cultural awareness. But in contrast with the past, the people identified as spies these days tend to be nerds: hackers, digital pirates and cyber-spies. Just as drone operators sitting in a remote location operating what resembles a video game console have increasingly replaced the soldier on the battlefield, the spies in today’s news are faceless operators. Their personalities are unknown and biographies singularly devoid of color and drama.

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      The picture becomes even more complex when we consider how the stories told about the cyber-spies emerge in the media. The source tends to be a government exposing them. But with so little substance to expose other than designating hidden lines of code, the public can’t even be sure that a newly-identified spy is real. And given that any clever coder motivated enough to rise to the challenge can hack the most secure target, the act that is identified as espionage may just be a feat of coding prowess by a teenager seeking to impress a few cyber-friends.

      We must not forget the need of some politicians in democratic nations to raise the alarm from time to time either to justify exceptional security measures they wish to impose, possibly for other reasons, or simply to prove to the electorate how vigilant they are in defending their vulnerable nation. In such circumstances, decoding the political intent behind incidents caused by coding becomes a major challenge. It is in such a context that, over the past week, the governments of the US and the UK have signaled at least two cases of spying by everyone’s favorite enemies in treachery: Russia and China.

      In the harvest of spy alerts from the past week, there was also what has become the obligatory mention of Russian meddling in Western elections (the Scottish independence referendum of 2014). But in the two contemporary cases that made the headlines, the goal turned out not to be the usual military, electoral or cultural goal (“sowing doubt” and “creating confusion”) but medical. The spies in question were seeking to hack research into the responses to COVID-19, the disease caused by the novel coronavirus.

      According to The Guardian, the US Justice Department has indicted two Chinese hackers “for seeking to steal Covid-19 vaccine research” and other acts of industrial espionage. “Justice Department officials said Li [Xiaoyu] and Dong [Jiazhi] targeted biotech companies in California, Maryland, Massachusetts and elsewhere but did not appear to have actually compromised any Covid-19 research.”

      Here is today’s 3D definition:

      Compromise:

      Allow an idea, concept, process or object to escape from the hands of a person or institution that has been jealously hoarding the idea, concept, process or object with a view to reaping the maximum profit from it

      Contextual Note

      The message that nothing was compromised will reassure the public. But, as often in these cases, the motivation and the supposed agency of the Chinese government are implied rather than proven. With its typical lack of clarity, CNN clarifies: “While the indictment does not specify if the hackers had been working at the behest of the Chinese government as they targeted the coronavirus projects, senior national security officials have been warning of Chinese government attempts to steal coronavirus research from US institutions for months.”

      In other words, much like Russiagate, if “national security figures” warned that something might be initiated by an identified agent (the Chinese government) and then something (but not exactly the thing they feared) does seem to happen, the conclusion requires no further investigation. That is exactly how conspiracy theories are built and justified, but it is also how the best scoops in the media are constructed.

      Historical Note

      In the world of geo-diplomatic intelligence spawned by the Cold War and continued by all nations who can afford it ever since, spying, hacking and spreading disinformation have become a kind of operational norm. This means that whenever a political leader needs to create a scare, there will always be one available for immediate exploitation. Over the past 70 years, alarms about spying and foreign meddling only burst into the media at moments in which leaders judge it expedient to draw such incidents to the public’s attention. In the midst of an intractable pandemic that has caused severe political grief to the leaders of the US and the UK, this is one of those moments.

      Most of these cases produce mild diplomatic incidents that may have immediate pragmatic consequences but rarely alter the balance of power or degenerate into forms of durable conflict. In today’s case, pitting China against the US, after the closure of the Chinese Consulate in Houston, the consequences appear to be far from negligible. It is, after all, an election year in the US and Donald Trump’s chances of getting a new four-year lease on the White House are rapidly dwindling. This may be just the first act of a four-month drama or an alternative scenario — alongside the Israel-Iran conflict — for Trump to have the tail towag the dog.

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      With the ultimate prospect of an intercontinental war, no one in the media seems to notice what is special and different about the idea of hacking research on COVID-19 treatments, cures and vaccines. That is because both the media and politicians have failed to ask the basic question: Why would anyone want access to urgent medical research?

      In a rational world in which nearly 8 billion people find themselves assailed by fear of contamination, accompanied by the gutting of their economies and the violent transformation of their way of life, research on treatments and cures should logically take the form of a universal collaborative project spontaneously shared among all competent experts and researchers across the globe. Instead, we are passively witnessing a competition driven solely by the profit-motive of a few.

      The real question is: Why isn’t this research already being shared? Why must it be hacked? Everyone knows the answer to that question. It is too obvious, too much a part of the landscape to mention. That is why they dare not even ask the question or assess the consequences. The winner of the race expects to be handsomely rewarded, benefiting from a monopolistic position. And the nation that harbors the winner will be the first to exploit it, with the option of hoarding.

      That is how today’s world order works and everyone seems to accept it as normal, even in these far from normal times. It’s a unified ideological system that governs both geopolitics and the economy. Competition, profit and what Thomas Piketty has called the “sacralization of property,” including industrial property, are the pillars of our historical heritage from the industrial age. 

      Secrets permit monopolies. Monopolies guarantee excessive profit. The rule of the game is that researchers on one side of the world must be unaware of the progress of their colleagues elsewhere. May the best researcher win. Yet this not only slows down progress toward a satisfactory solution, but it also increases the risk that the winning solution may be flawed or incomplete.

      In today’s world, sharing means compromise. But that is deemed unacceptable for a simple reason: Compromise means being compromised. Totally unacceptable.

      *[In the age of Oscar Wilde and Mark Twain, another American wit, the journalist Ambrose Bierce, produced a series of satirical definitions of commonly used terms, throwing light on their hidden meanings in real discourse. Bierce eventually collected and published them as a book, The Devil’s Dictionary, in 1911. We have shamelessly appropriated his title in the interest of continuing his wholesome pedagogical effort to enlighten generations of readers of the news. Click here to read more of The Daily Devil’s Dictionary on Fair Observer.]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      India Must Abandon Nehru’s Failed Non-Aligned Policy to Confront China

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      Troops from India and China have clashed this year in Ladakh and North Sikkim at the border between the two countries. Although there are immediate reasons for the clash, the deeper causes of India’s border disputes with both China and Pakistan are its post-independence historic blunders. India has catastrophically failed to establish, delineate and demarcate its boundaries when it was in a position to do so.

      Jawaharlal Nehru, the first Indian prime minister after independence in 1947, was a man of the leftist mold and so were many of his confidantes. They ignored reports of Chinese atrocities and progressive occupation of Tibet sent by Sumal Sinha, the Indian consul general in Lhasa, and Apa Pant, the dewan, the de facto prime minister, of the Himalayan kingdom of Sikkim, which at that time was a protectorate and is now a state of India.

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      Two influential Indians emerge with much discredit. One is V.K. Krishna Menon, India’s defense minister from 1957 to 1962, who resolutely maintained that India had nothing to fear from China. The other is K.M. Panikkar, India’s ambassador to China from 1950 to 1952, whose advice “proved to be unwise.” Panikkar persuaded Nehru to recognize China’s sovereignty over Tibet when Mao Zedong’s People’s Liberation Army (PLA) took over this de facto independent buffer state in October 1950. The historian T.R. Ghodbole records that Panikkar “advised Nehru not to raise the border issue” with China as the price for accepting the conquest of Tibet.

      One Indian leader shines in contrast. Sardar Vallabhbhai Patel, India’s first home minister and Nehru’s deputy, was prescient about the Chinese threat. He wrote a now well-known letter, to the prime minister, calling Chinese action “little short of perfidy.” Patel, a Gandhian from the right of the Indian National Congress party, argued that Chinese irredentism and communist imperialism were “ten times more dangerous” than Western expansionism or imperialism because it wore “a cloak of ideology.” The wise home minister died soon after writing this letter. Now, Indian policy was firmly in the hands of leftist ideologues who failed to take any of the steps he advocated to safeguard the country’s security interests.

      Misunderstanding China and Abandoning Tibet

      Nehru soon embarked on his misconceived policy of non-alignment. He wanted to be the moral leader of the Third World who pioneered a policy of peace in contrast to the militaristic policies of imperial powers. As a result, India failed to build up its own capabilities to defend its sovereignty and territorial integrity. Nehru forgot to heed the Roman doctrine that if “you want peace, be prepared for war; therefore, let him who desires peace get ready for war.” He also forgot the ancient Indian strategist Chanakya who postulated that “every neighbor is a potential enemy and an enemy’s enemy is a friend.”

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      It was this complete absence of strategic thinking that led to the debacle in Tibet in 1950. Even as China was building up its strength and repudiating so-called unequal treaties imposed by imperial powers, Nehru was content to swan around on the world stage as a moral, peaceful beacon for the world. It was this naive thinking that led the country to take the issue of Kashmir to the United Nations and fail to press home its military advantage in 1948. Back then, India was in a position to claim the entire state of Jammu and Kashmir, including the parts that China now controls.

      India failed to understand China’s worldview. Henry Kissinger, the former US secretary of state under President Richard Nixon, had his finger on the Chinese pulse in his book, “World Order.” He observes that China has considered itself as “the sole sovereign government of the world’ since its unification in 221 BC. It did not consider other monarchs as equal. They were mere “pupils in the art of governance, striving towards civilization.” The Chinese emperor commanded “all under heaven,” tianxia in Chinese parlance. China forms the central, civilized part, “the Middle Kingdom” of tianxia. It is supposed to inspire and uplift the rest of humanity.

      Chinese President Xi Jinping is the son of an ardent Maoist. Like Mao, he has emerged as a modern-day Chinese emperor. Xi has reintroduced this idea of tianxia. His first act when he became the leader of the Chinese Communist Party (CCP) in 2012 was to visit the Museum of Revolution. There he declared that China was ready to be a world leader “because of its 5,000-year-old history, the CCP’s 95-year historical struggle and the 38-year development miracle of reform.” This is the danger that Patel foresaw but Nehru did not.

      In 1950, India could have prevented the Chinese takeover of Tibet. It could have strengthened its garrison in Lhasa instead of withdrawing its troops, used its air force and supported the poorly equipped Tibetan forces. China was isolated internationally in the 1950s. The Western powers were anti-communist and did not like Chinese interference in Vietnam. China’s relations with the Soviet Union spiraled downward after 1955. India failed to build a coalition against China even when the West had shown interest in supporting the Tibetans. Indeed, as Atul Singh, Glenn Carle and Vikram Sood record in a detailed article on Fair Observer, India inexplicably turned down a permanent seat at the United Nations Security Council.

      Once China conquered Tibet, it was at India’s doorstep. In the 1950s, it stealthily took over 37,244 square kilometers of Aksai Chin and built a road connecting southern Tibet to Xinjiang. It also started claiming large chunks of Indian territory such as Arunachal Pradesh and parts of Ladakh. Indeed, the Chinese claim line extends right up to the plains of Assam.

      Singh, Carle and Sood have examined in some detail the various boundaries the British drew as their boundary with the Qing. China was in turmoil after its revolution of 1911-12 and Tibet was de facto independent. It was a buffer state where the British had many strategic assets, which India inherited but soon gave up to China. Released files of the Central Intelligence Agency reveal the extent of Nehru’s capitulation to Mao. India signed a treaty with China and inexplicably agreed to withdraw troops from Tibetan towns of Yatung and Gyantse, which were mainly trading posts, and also wind up the garrison in Lhasa. It handed over control of postal, telegraph and telephone facilities to the Chinese.

      Embed from Getty Images

      None of these concessions satisfied the Chinese. Instead, these missteps whetted the appetite of a resurgent Middle Kingdom. China did not accept any of the lines the British had drawn on the map and kept claiming more and more of Indian territory. Finally, war ensued. In 1962, China handed India a devastating defeat that continues to haunt the country to this day.

      The two countries severed diplomatic relations after the war. They restored them only in 1984. Since then, they have conducted several rounds of negotiations and signed several agreements but never been able to agree to define and demarcate the line of actual control (LAC), the de facto line dividing Indian and Chinese territory, or agree upon an international boundary. Despite India’s repeated efforts to get the LAC demarcated, the Chinese have been intransigent. It is far too convenient for them to have an undefined LAC, which allows them to alter it for strategic advantage whenever they have an opportune moment.

      China’s Expansionist Policy and Indian Response

      Chinese intransigence is the key reason why the two countries have been unable to come to an agreement. In 1960, Zhou Enlai, the Chinese premier, proposed formalizing the status quo. He suggested India keep what is now called Arunachal Pradesh while China would retain Aksai Chin. Later, Deng Xiaoping reiterated Zhou’s position. In 1962, Chinese troops largely withdrew from Indian territory and even vacated the strategic town of Tawang, a great center of Buddhist learning and pilgrimage.

      As per these actions, one could infer the Chinese took what they want. Sadly, this is not true. The Chinese have been consistently and persistently moving the goalposts. China now refuses to accept the McMahon Line in Arunachal Pradesh as the international boundary and is claiming Tawang again on the ground that the sixth Dalai Lama was born here. It is important to remember that the border alignment agreed by China with Myanmar follows roughly this very line.

      China has been constantly upgrading its military and building up its border infrastructure. It has also been breaching all the agreements that it signed with India. The only exception is the exchange of maps relating to the middle sector bordering the Indian state of Uttarakhand in 2005.

      This year, China has displayed unusual belligerence far exceeding past practices. It has exerted pressure in both North Sikkim and Ladakh. The proximate reason lies in India belatedly boosting its border infrastructure. It has built the world’s highest airfield at Daulat Beg Oldi (DBO). An all-weather road now goes east from Leh, the capital of Ladakh, to Durbuk and then further east to the Shyok river, from where it turns north and runs all along the LAC right up to DBO. This airfield sits at the base of a historic pass through the Karakoram and gives India access to Central Asia. It is also close to the strategic Siachen Glacier where India controls the commanding heights and dominates Pakistan.

      For decades, India neglected its border infrastructure. Defeat to China in 1962 scarred the country. Its policymakers went into a defeatist mindset. They thought good roads would be used by the Chinese to speed into Indian territory while rugged undeveloped terrain would slow down Chinese advance. Domestic organizations and foreign private companies have now dramatically altered the ground situation, especially in the western sector. This has made China nervous. It feels the China-Pakistan Economic Corridor (CPEC) — a trade route that is important for Beijing’s Belt and Road Initiative and its geopolitical strategy in South Asia — might be under threat. Indian troops could block off its access to Gilgit-Baltistan.

      Possibly as a reaction, Chinese troops have been pressing at strategic points on the Ladakh border such as Gogra Hot Springs, Depsang Bulge, Galwan Valley and Pangong Tso Lake. They want to make sure that the road India has built to its airfield at DBO comes within range of Chinese gunsights. Nibbling Indian territory has been the general strategy for a long time. The Chinese are infamous for following “salami tactics” not only with India but also with other neighbors like Vietnam or Japan.

      Increasingly, China appears to be unnerved by India’s strategic direction. In 2017, New Delhi was firm in defending Bhutan’s territory in Doklam Plateau, which China lays claim to. India has strengthened ties with Australia, the European Union and the US. The specter of the Quad, an alliance of India, Japan, Australia and the US, blocking the Straits of Malacca — an international waterway — haunts China. In particular, China fears that the US is backing India to be a counterweight to China in Asia.

      Under President Xi, China has been increasingly aggressive on its borders. It has also been repressive internally. China has tightened the screws on Hong Kong, Tibet and Xinjiang. The Belt and Road Initiative is another example of Chinese expansionism.

      China’s recent belligerence might come from a deep sense of insecurity due to several recent developments. The US has unleashed a trade war that has hit China’s export-oriented economy hard. Furthermore, capital and manufacturing have been moving to Indonesia and Vietnam. India has now made a play for that capital as well. In addition, Western countries have criticized China for its domestic as well as external actions. The COVID-19 pandemic has blotted its record and lowered its global image. India has supported the US in calling out China on its suppression of information about the pandemic and in instituting an inquiry into the origins of the COVID-19 disease.

      India has long borne the brunt of Chinese aggression. It has never raised the issue of an independent Tibet in the international arena. It was the first non-socialist country to recognize China. Yet China has consistently acted against India’s interests. It has used Pakistan as a proxy against India. Beijing has even provided nuclear technology and fissile material to Islamabad. It blocks India’s membership of the Nuclear Suppliers Group, an organization of nuclear-supplier countries. It has built a port in Sri Lanka and instigated the communist government in Nepal to act against India’s interests.

      The time has come for India to stand up to China’s bullying. The nation cannot allow China to keep gobbling up Indian territory. India has to keep modernizing its military, building up its border infrastructure and developing closer ties with other nations threatened by China. Most importantly, India has to recognize that China is its principal strategic enemy, both in the short and the long term. Therefore, India has no option but to cast off its failed non-aligned policy and ally with the US against China. Only a full-fledged military alliance between the world’s two largest democracies will deter the world’s biggest tyrannical regime.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      China Is Flexing Its Muscles in the South China Sea

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      As the coronavirus continues to spread across the globe, China is taking advantage of the chaos and the preoccupation of governments with battling the pandemic. Beijing has long been opportunistic, so it is using what it sees as a unique confluence of circumstances to strengthen its strategic, geopolitical and military position. This is being done in a number of ways — using soft and hard power — by delivering personal protective equipment (PPE) throughout the world, increasing its foreign aid, rejiggering the Belt and Road Initiative and reinforcing its militarization of the South China Sea.

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      For years, the Chinese government has argued that its “nine-dash line” of sovereignty over the entire sea is based on centuries of maritime history and that China’s claim is airtight. The Chinese Foreign Ministry has even asserted that ample historical documents and literature demonstrate that China was “the first country to discover, name, develop and exercise continuous and effective jurisdiction over the South China Sea islands.”

      The truth is somewhat different, however. As veteran journalist Bill Hayton notes in the book, “The South China Sea,” the first Chinese official ever to set foot on one of the Spratly Islands was a nationalist naval officer in 1946, the year after Japan’s defeat in World War II and its own loss of control of the sea. He did so from an American ship crewed by Chinese sailors who were trained in Miami.

      Nine-Dash Line

      As for the story of the nine-dash line, it began a decade earlier through a Chinese government naming commission. China was not even the first to name the islands; the naming commission borrowed and translated wholesale from British charts and pilots. It is unclear how the Chinese government transformed all of this into a bill of goods it has sold to the Chinese people, but by now it is a source of national pride, however misplaced it may be.

      Yet the Chinese government and its people have backed themselves into a corner. In 2016, an international tribunal in The Hague ruled that there is no legal basis for China’s claim over the islands. Meanwhile, Beijing has failed to produce evidence of its declaration to back up its version of the facts. Despite this, the Chinese have been drinking the nine-dash line Kool-Aid for so long that national pride will not allow them to admit that what the government is doing in the South China Sea is illegal under international maritime law — the UN Convention on the Law of the Seas. Ironically, China subscribed to the convention on the very day in 1982 when it first became a legal instrument.

      Embed from Getty Images

      The Chinese government has not personified the rule of law in this case — or in others related to maritime borders — and wants to be able to cherry-pick which provisions of international treaties it will comply with. That is behavior unbecoming of a rising global power and will make states which are signatories to treaties with China wonder if its signature is worth the paper it is printed on. This cannot be in China’s long-term interest.

      The Chinese government views America’s recent naval exercises in the South China Sea as illegal and merely serving to aggravate tensions between the two countries. Washington has maintained for many years that China has no legal basis upon which to continue to assert its maritime claim over the islands, shoals or reefs of the South China Sea. The nations of Asia, and the rest of the world, agree with the US position. The question is: Will the world’s nations join America in publicly and consistently opposing Beijing’s continued illegal actions in the region?

      Who Will Speak Up?

      That seems unlikely. Given Beijing’s recent propensity to practice wolf diplomacy by swiftly and harshly responding to any criticism of its actions, most Asian countries are likely to remain silent. Australia, Japan and South Korea are possible exceptions to that from a military perspective, but given that they have been content to cede that role to America, not much is likely to change in the near future. Australia is already reeling from a healthy dose of wolf diplomacy, which has negatively impacted its bilateral trade with China.

      Beijing has become accustomed to doing whatever it wants, with little consequence. The US, the countries of Asia and much of the rest of the world remained largely silent when Beijing was expropriating and militarizing the Spratly and Paracel Islands. That was a grave error. Now, most governments see little point in objecting to what is, in essence, a fait accompli. Now, short of going to war, China’s militarization of the South China Sea is a reality the world is simply going to have to live with.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      The Mount of Autocrats

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      Donald Trump would dearly like to add his face to Mount Rushmore as the fifth presidential musketeer. His fireworks-and-fury extravaganza on July 3 was the next best thing. Trump’s dystopian speech was almost beside the point. Much more important was the photo op of his smirking face next to Abraham Lincoln’s.

      More fitting, however, would be to carve Trump’s face into a different Rushmore altogether. This one would be located in a more appropriate badlands, like Mount Hermon in Syria near the border with Israel. There, Trump’s visage would join those of his fellow autocrats, Vladimir Putin and Xi Jinping. To honor the illiberal locals, the stony countenances of Bashar al-Assad and Benjamin Netanyahu would make it a cozy quintet.

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      Let’s be frank: Thomas Jefferson and George Washington are not the company that Trump keeps, despite his “America First” pretensions. His ideological compatriots are to be found in other countries: Jair Bolsonaro of Brazil, Narendra Modi of India, Rodrigo Duterte of the Philippines, Daniel Ortega of Nicaragua, Viktor Orban of Hungary and so on. Alas, this global Rushmore of autocrats is becoming as crowded as a football team pressed together for a selfie.

      But Putin and Xi stand out from the rest. They get pride of place because of their long records of authoritarian policies and the sheer brazenness of their recent power grabs. By comparison, Trump is the arrogant newcomer who may well not last the season, an impulsive sprinter in the marathon of geopolitics. If things go badly for Team Trump in November, America will suddenly be busy air-brushing 45 out of history and gratefully chiseling his face out of the global Rushmore. Putin and Xi, however, are in it for the long haul.

      Leader for Life

      At the end of June, Russia held a referendum on a raft of constitutional changes that President Putin proposed earlier in the year. In front of Russian voters were over 200 proposed amendments. No wonder the authorities gave Russians a full week to vote. They should have provided mandatory seminars on constitutional law as well.

      Of course, the Russian government wasn’t looking to stimulate a wide-ranging discussion of governance. The Russian parliament had already approved the changes. Putin simply wanted Russian voters to rubber-stamp his nationalist-conservative remaking of his country.

      At the same time, a poor turnout would not have been a good look. To guarantee what the Kremlin’s spokesman described as a “triumphant referendum on confidence” in Putin, workplaces pressured their employees to vote and the government distributed lottery prizes. Some people managed to vote more than once. On top of that, widespread fraud was necessary to achieve the preordained positive outcome.

      Instead of voting on each of the amendments, Russians had to approve or disapprove the whole package. Among the constitutional changes were declarations that marriage is only between a man and a woman, that Russians believe in God and that the Russian Constitution takes precedence over international law. Several measures increased executive power over the ministries and the judiciary. A few sops were thrown to Putin’s core constituencies, like pensioners. Who was going to vote against God or retirees?

      But the jewel in the crown was the amendment that allows Putin to run for the presidency two more times. Given his systematic suppression of the opposition, up to and including assassination, Putin will likely be in office until he’s 84 years old. That gives him plenty of time to, depending on your perspective, make Russia great again or make Russia into Putin, Inc.

      The Russian president does not dream of world domination. He has regional ambitions at best. Yet these ambitions have brought Russia into conflict with the United States over Ukraine, Syria, even outer space. And then there’s the perennial friction over Afghanistan. Much has been made in the US press about Putin offering the Taliban bounties for US and coalition soldiers. It’s ugly stuff, but no uglier than what the United States was doing back in the 1980s.

      Did you think that all the US money going to the mujahideen was to cultivate opium poppies, run madrasas and plan someday to bite the hand that fed them? The US government was giving the Afghan “freedom fighters” guns and funds to kill Soviet soldiers, nearly 15,000 of whom died over the course of the war. The Russians have been far less effective. At most, the Taliban have killed 18 US soldiers since the beginning of 2019, with perhaps a couple tied to the bounty program.

      Still, it is expected that a US president would protest such a direct targeting of US soldiers even if he has no intention to retaliate. Instead, Trump has claimed that Putin’s bounty program is a hoax. “The Russia Bounty story is just another made up by Fake News tale that is told only to damage me and the Republican Party,” Trump tweeted.

      Knowing how sensitive the US president and the public are to the death of America soldiers overseas, Putin couldn’t resist raising the stakes in Afghanistan and making US withdrawal that much more certain. Taking the United States out of the equation — reducing the transatlantic alliance, edging US troops out of the Middle East, applauding Washington’s exit from various international organizations — provides Russia with greater maneuvering room to consolidate power in the Eurasian space.

      Trump has dismissed pretty much every unsavory Kremlin act as a hoax, from US election interference to assassinations of critics overseas. Trump cares little about Ukraine, has been lukewarm if not hostile toward US sanctions against Moscow, and has consistently attempted to bring Russia back into the G8. Yet he has also undermined the most important mechanism of engagement with Russia, namely arms control treaties.

      President Trump’s servile approach to Putin and disengaged approach to Russia is the exact opposite of the kind of principled engagement policy that Washington should be constructing. The United States should be identifying common interests with Russia over nuclear weapons, climate, regional ceasefires, reviving the Iran nuclear deal — and, at the same time, criticizing Russian conduct that violates international norms.

      Territory Grab

      China’s Xi Jinping has already made himself leader for life, and he didn’t need to go to the pretense of a referendum on constitutional changes. In 2018, the National People’s Congress simply removed the two-term limit on the presidency and boom: Xi can be on top ‘til he drops. Forget about collective leadership within the party. And certainly forget about some kind of evolution toward democracy. Under President Xi, China has returned to the one-man rule of the Mao period.

      So, while Putin was busy securing his future this past weekend, Xi focused instead on securing China’s future as an integrated, politically homogeneous entity. In other words, Xi moved on Hong Kong.

      Hong Kong once had great economic value for Beijing as a gateway to the global economy. Now that China has all the access to the global economy that it needs and then some, Hong Kong has only symbolic value, as a former colonial territory returned to the Chinese nation in 1997. To the extent that Hong Kong remains an enclave of free-thinkers who take potshots at the Communist Party, Beijing will step by step deprive it of democracy.

      On June 30, a new national security law went into effect in Hong Kong. “The new law names four offences: secession, subversion, terrorism, and collusion with foreign forces,” Matt Ho writes in the South China Morning Post. “It also laid out new law enforcement powers and established government agencies responsible for national security. Conviction under the law includes sentences of life in prison.”

      The protests that have roiled Hong Kong for the past many months, from Beijing’s point of view, violate the national security law in all four categories. So, violators may now face very long prison sentences indeed, and police have already arrested a number of people accused of violating the new law. The new law extends to virtually all aspects of society, including the schools, which now must “harmonize” their teaching with the party line in Beijing.

      What’s happening in Hong Kong, however, is still a dilute version of the crackdown taking place on the mainland. This week, the authorities in Beijing arrested Xu Zhangrun, a law professor and prominent critic of Xi. He joins other detainees, like real-estate mogul Ren Zhiqiang, who was linked to an article calling Xi a “clown with no clothes on who was still determined to play emperor” and Xu Zhiyong, who called on Xi to resign for his handling of the coronavirus crisis.

      Meanwhile, Beijing’s treatment of Muslims in Xinjiang province amounts to collective punishment: more than a million consigned to “reeducation camps,” children separated from their families, forced sterilization. Uighur exiles have charged China with genocide and war crimes before the International Criminal Court.

      Like Putin, Xi has aligned himself with a conservative nationalism that appeals to a large portion of the population. Unlike Putin, the Chinese leader doesn’t have to worry about approval ratings or periodic elections. He is also sitting on a far-larger economy, much greater foreign currency reserves, and the means to construct an illiberal internationalism to replace the Washington consensus that has prevailed for several decades. Moreover, there are no political alternatives on the horizon in China that could challenge Xi or his particular fusion of capitalism and nationalism.

      Trump has pursued the same kind of unprincipled engagement with China as he has with Russia: flattery of the king, indifference toward human rights and a focus on profit. Again, principled engagement requires working with China on points of common concern while pushing back against its human rights violations. Of course, that’s not going to happen under the human rights violation that currently occupies the White House.

      And Trump Makes Three

      Trump aspires to become a leader for life like his buddies Putin and Xi, as he has “joked” on numerous occasions. He has similarly attacked the mainstays of a democratic society — the free press, independent judges, inspectors general. He has embraced the same nationalist-conservative cultural policies. And he has branded his opponents as enemies of the people. In his Rushmore speech on July 3, Trump lashed out against:

      “… a new far-left fascism that demands absolute allegiance. If you do not speak its language, perform its rituals, recite its mantras, and follow its commandments, then you will be censored, banished, blacklisted, persecuted, and punished. It’s not going to happen to us. Make no mistake: this left-wing cultural revolution is designed to overthrow the American Revolution. In so doing, they would destroy the very civilization that rescued billions from poverty, disease, violence, and hunger, and that lifted humanity to new heights of achievement, discovery, and progress.”

      He went on to describe his crackdown on protesters, his opposition to “liberal Democrats,” his efforts to root out opposition in schools, newsrooms and “even our corporate boardrooms.” Like Putin, he sang the praises of the American family and religious values. He described an American people that stood with him and the Rushmore Four and against all those who have exercised their constitutional rights of speech and assembly. You’d never know from the president’s diatribe that protesters were trying to overthrow not the American Revolution but the remnants of the Confederacy.

      Trump’s supporters have taken to heart the president’s attacks on America’s “enemies.” Since the protests around George Floyd’s killing began in May, there have been at least 50 cases of cars ramming into demonstrators, a favorite tactic used by white supremacists. There have been over 400 reports of press freedom violations. T. Greg Doucette, a “never Trump” conservative lawyer, has collected over 700 videos of police misconduct, usually violent, toward peaceful demonstrators.

      As I’ve written, there is no left-wing “cultural revolution” sweeping the United States. It is Donald Trump who is hoping to unleash a cultural revolution carried out by a mob of violent backlashers who revere the Confederate flag, white supremacy and the Mussolini-like president who looks out upon all the American carnage from his perch on the global Rushmore of autocrats.

      *[This article was originally published by FPIF.]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More